Sri Lanka’s debt restructuring challenge
The Sri Lankan economy has begun to show signs of recovery from its worst economic crisis since independence following the US$2.9 billion International Monetary Fund (IMF) reform program that commenced in late March 2023.
Sri Lanka’s foreign exchange buffers have improved thanks to the first instalment of the IMF loan, supplemental funding from the Asian Development Bank and the World Bank and rising migrant worker remittances and tourist arrivals. This has permitted the government to lift restrictions on essential imports. Inflation is gradually dissipating and long queues at fuel stations and mass street protests have ended. But the government’s arduous task of achieving durable economic stability and putting the economy on a sustainable growth path is yet to begin. A challenge the country continues to face is the massive sovereign debt overhang.
When the IMF approved Sri Lanka’s Extended Fund Facility Programme (EFFP) the country’s stock of public debt was US$82 billion — 128 percent of GDP — with domestic and foreign debt accounting for approximately equal shares. Annual interest payments were eating up nearly two thirds of government revenue and domestic debt accounted for the bulk of this interest burden.
China’s economic model is faltering
The long days of summer are proving to be rather too long for the government in Beijing. In an attempt to stabilise the faltering real estate market, the authorities announced earlier this week a modest decline in interest rates that was underwhelming in scale and intent.
Those who recall the bad old days in which the west was buffeted by successive crises such as those involving Northern Rock, Bear Stearns and Lehman Brothers will recognise the futility of lower interest rates in stemming systemic problems in real estate and finance when the problem has nothing to do with interest rates being too high. And so it is in contemporary China, where the government is battling to stabilise an unstable economy.
It is clear that China’s economy is flailing. The yuan exchange rate is under pressure, and the authorities may be hard pushed to prevent people and firms trying to get money out of China despite tough regulations on the outflow of capital. Stock prices, which, to be fair, are only weakly associated with the economy, are at their lowest level since the end of 2022, but they reveal a paucity of confidence among Chinese households, investors and private firms in a deflationary environment.
India’s gdp growth in q1 fy24 to touch 8.3pc
India’s GDP growth in Q1 FY24 will stand at 8.3 percent as compared to the Reserve Bank of India’s (RBI) estimate of 7.8-8.0 percent, noted the latest State Bank of India’s Economic Research Department’s report, SBI Ecowrap. The report added that total FY24 growth will be higher than 6.5 percent.
The International Monetary Fund (IMF) had projected India’s growth at 6.1 percent in 2023, a 0.2 percentage point upward revision compared with the April projection, due to stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.
SBI’s report noted that despite headwinds, economic activity in India remained resilient in the April-June quarter of FY24, driven mainly by the growth in the services sector.
“Gross fixed capital formation (GFCF) and industrial production have slowed sharply or contracted in major advanced economies, dragging international trade and manufacturing in emerging markets as a corollary. The balance of risks to global growth remains tilted to the downside as extreme climatic events and enhanced geopolitical tension upend the drivers of risk multifold,” SBI’s Ecowrap said.
The SBI composite leading indicator (CLI) Index (a basket of 43 leading indicators that includes parameters from almost all the sectors) based on monthly data shows continued positive economic activity in Q1FY24, compared to Q4FY23.
Indonesia holds great promise for rapid economic growth
While China and India tend to capture most of the headlines when identifying the world’s major economies likely to grow the fastest over the coming decade, another Asian behemoth is much less discussed, despite demonstrating formidable economic growth over the last decade (outside of the pandemic). And with estimates suggesting that Indonesia will continue on its solid growth trajectory until at least 2030, Southeast Asia’s largest economy represents one of the most exciting prospects in the world over the coming years.
Underscoring this promise was the February news that Indonesia’s economic growth last year surged to a nine-year high, with gross domestic product (GDP) having expanded by 5.31 percent from 2021 levels, thus returning it to its pre-pandemic pace of more than 5 percent growth per year. The strong performance can be attributed to several key factors—chief among them household consumption, which represents more than half of Indonesia’s GDP and accelerated last year as Indonesians enjoyed a rebound in mobility and tourism following the lifting of pandemic-era restrictions.
Why China is grappling with falling prices – and being compared to Japan
As the rest of the world grapples with rising living costs, China is facing the opposite problem: falling prices.
In July, the world’s second-largest economy officially slipped into deflation for the first time in two years as consumer prices fell 0.3 percent. Prices had already flatlined for much of 2023, bucking the global trend of spiking prices for everything from energy to food.
While lower prices might sound appealing to the average consumer, economists view deflation as a bad sign for the economy.
When prices fall over an extended period, consumers reduce spending and companies cut back on production – in turn resulting in layoffs and lower salaries.
The Chinese economy’s slide into deflation is the latest in a series of warning signs to raise doubts about the strength of its post-pandemic recovery.
China has slipped into deflation before, but economists are more concerned about the fall in prices this time round. The last time prices fell, in early 2021, millions of people were under lockdown and factories were shut due to COVID restrictions.
Malaysia posts weakest gdp growth in nearly 2 years
Malaysia’s economic growth hit the lowest in nearly two years in the second quarter due to sliding exports and a global slowdown, prompting the central bank on Friday to warn that full-year growth will come in at the lower end of its previous forecast.
The weaker outlook does not change most economists’ expectations for the central bank to keep policy rates on hold this year as the Southeast Asian economy confronts weakening global demand and a slowdown in main trading partner China.
Second-quarter annual growth came in at 2.9 percent, central bank data showed. The expansion was the slowest pace since the third quarter of 2021 when the economy contracted by 4.2 percent, and was lower than the 5.6 percent growth in the first quarter of the year.
Economists surveyed by Reuters had forecast gross domestic product growth at 3.3 percent in the April to June period.
Bank Negara Malaysia also said full-year economic expansion will come in at the lower end of the 4 percent to 5 percent range it had forecast earlier, though some economists predict the target will be hard to reach as domestic demand slows as well.
“The weak external demand is expected to weigh on near-term growth. The economy is facing downside risks stemming from weaker-than-expected global growth, and a deeper or longer-than-expected technology downcycle,” Governor Abdul Rasheed Ghaffour told a news conference.
Sri Lanka gets more remittances from Maldives than Australia
Sri Lanka has received 160.5 million US dollars of official remittances from Kuwait, followed by Qatar at 146.2 million US dollars and the UAE at 130.3 million US dollars in the first quarter of 2023, official data shows.
Workers in Saudi Arabia remitted 123.1 million US dollars, according to central bank data.
South Korea came in fifth place with 105 million US dollars in remittances.
Sri Lanka got 95.2 million dollars in remittances from the US, 85.7 million from Italy, 75.4 million from the UK.
More remittances came from Maldives in South Asia, that Australia. Sri Lankan worker remitted 29.3 million US dollars from Maldives and from Australia 26.5 million US dollars.
Maldives has the soundest money in South Asia, through a partially credible peg, without activist inflationism (macro-economic policy) to push growth and trigger currency collapses forcing people to flee to other countries.
Nepalese Prime Minister’s upcoming visit to China
In a strategic move aimed at maintaining equilibrium in its foreign relations, Nepal’s Prime Minister Pushpa Kamal Dahal Prachanda is set to embark on a crucial visit to China at the end of September. This visit holds paramount importance not only for Nepal but also for the broader region, particularly against the backdrop of evolving global dynamics.
In the year 2022, Nepal’s imports from China totaled $1.84 billion, while exports amounted to $5.39 million. This economic engagement is underpinned by China’s significant role as a key investor in Nepal’s infrastructure development. Notably, Beijing’s contribution accounts for 14 percent of Nepal’s international trade. In comparison, India holds a prominent share of nearly two-thirds of Nepal’s trade, highlighting the diversity of Nepal’s economic partnerships. An important milestone in their collaboration was reached in 2016, when China granted Nepal access to its ports for trading with other nations. Additionally, both nations embarked on an ambitious project to establish a trans-Himalayan railway network linking Kathmandu with China’s Tibet region, a venture that underscores their commitment to enhancing connectivity and cooperation.
Thai q2 gdp growth slows sharply amid weak global demand
Thailand’s economy grew at a much slower-than-expected pace in the second quarter, data showed on Monday, as weak exports and slower investment undercut strength in tourism and prompted the government to downgrade its 2023 growth forecast.
Southeast Asia’s second-largest economy has been hobbled by slackening global growth, led by its main trading partner China and falling investor confidence due to a protracted period without a government following elections in May.
Thailand’s gross domestic product grew 1.8 percent in the April-June period from a year earlier, the National Economic and Social Development Council (NESDC) said, well below the 3.1 percent expansion expected by economists in a Reuters poll.
GDP had risen 2.6 percent year-on-year in the first quarter, revised down from 2.7 percent stated earlier.
The second quarter was hurt by export volumes falling 5.7 percent year-on-year and dragging manufacturing output down by 3.3 percent, while government spending also declined 4.3 percent. All of this put a further dampener on fixed asset investment, which was down 2.8 percent on-quarter.
Rare earths magnet firms turn to Vietnam in China hedge
Korean and Chinese magnet firms, including an Apple supplier, are set to open factories in Vietnam, according to documents and people familiar with the plans, amid a push to diversify supply chains away from China and defend against Sino-US tension.
South Korea’s Star Group Industrial (SGI) and China’s Baotou INST Magnetic would join companies in sectors as varied as electronics and automobiles in shifting assembly lines against a backdrop of increasing trade restrictions, with clients even requesting the move, the people said.
China is dominant in magnets and the rare earth metals they are made from. The magnets are central to the manufacturing of such products as electric vehicles, wind turbines, weapons and smartphones, making the sector strategically important.